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TJX Companies (TJX) Up 9.5% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for The TJX Companies, Inc. (TJX - Free Report) . Shares have added about 9.5% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is TJX due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

TJX Companies Q1 Earnings & Sales Increase Year Over Year

TJX Companies reported first-quarter fiscal 2019 results, wherein earnings came in at $1.13 per share. Adjusted earnings of 96 cents per share jumped 17% year over year. The Zacks Consensus Estimate was pegged at $1.02. Notably, currency translations had a 4 cents positive impact on earnings per share.

Net sales advanced about 12% year over year to $8,688.7 million, which beat the Zacks Consensus Estimate of $8,503 million. Currency translations benefited consolidated net sales growth by 3%. Sales were also backed by solid comparable store sales (comps).

TJX Companies' consolidated comps grew 3% year over year, primarily fueled by greater customer traffic at all main segments.

Segment-wise, comps rose 2%, 3%, 1% and 4%, respectively, in HomeGoods, TJX Canada, TJX International and Marmaxx segments. Marmaxx particularly gained from increased consumer interest for its fashionable and branded products at a compelling value.

Gross margin dipped 0.1 percentage point (pp) to 28.9%. Selling, general and administrative costs, as a percentage of sales, fell 0.3 pp to 17.8%, courtesy of cost savings and a one-time benefit from a lease acquisition. TJX Companies' consolidated pre-tax profit margin rose 0.3 pp year over year to 11%.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $2,681.1 million, long-term debt of $2,231.4 million and total shareholders’ equity of $5,262.4 million. Cash flow from operations for the quarter was $724.9 million.

Consolidated inventories on a per-store basis (including distribution centers and excluding e-commerce and inventory in transit) increased 7% (up 6% on a constant-currency basis) year over year. The company remains well placed to take advantage of solid opportunities in the market for branded merchandise, given its impressive inventory position at the beginning of the second quarter.

During the quarter, the company returned approximately $597 million to shareholders. As part of this, TJX Companies repurchased 4.9 million shares for $400 million and paid dividends worth $197 million. For fiscal 2019, the company expects to repurchase shares worth approximately $2.5-$3.0 billion.

Management announced a 25% dividend hike during the quarter, taking its quarterly dividend to 39 cents per share. The raised dividend, payable on Jun 7, marks TJX Companies’ 22nd straight year of dividend hike.

During the first quarter, the company added 71 stores, taking its total store count to 4,141 stores as of May 5, 2018.

Fiscal 2019 Guidance

Management remains optimistic about fiscal 2019 and remains focused on implementing its sales initiatives to attract traffic. Management is impressed with its consistent rise in customer traffic and is encouraged to witness continued market share gains. The company’s top line is likely to gain from its solid merchandise assortment and solid brands.

For fiscal 2019, TJX Companies now projects adjusted earnings per share in the range of $4.04-$4.10, representing a 5 increase from the year-ago period adjusted earnings. Earlier, management had expected the bottom line to be in the range of $4.00-$4.08 per share, reflecting a 4 increase from the year-ago period earnings.

Including benefits from tax-reforms, earnings are anticipated to grow 18 to $4.75-$4.83 per share. Prior to this, management had anticipated earnings to rise 17 to $4.73-$4.83 per share.

However, wage increases are still expected to negatively impact earnings growth by 2%. Also, higher freight costs are likely to be a drag. Nonetheless, comps are expected to grow 1-2% for fiscal 2019.

Q2 View

For second-quarter fiscal 2019, the company expects adjusted earnings in the range of 87-89 cents per share, compared with 85 cents recorded in the year-ago period. This includes expected negative impacts from restructuring costs related to the company’s IT department. Including benefits from tax reforms, earnings are expected to come in the range of $1.02-$1.04 per share. Wage increases are expected to hurt bottom-line growth by 2%, while currency movements are likely to boost it by 4%. The company expects consolidated comps growth of 1 in the second quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been eight revisions lower for the current quarter.

VGM Scores

At this time, TJX has a great Growth Score of A, though it is lagging a lot on the momentum front with a C. The stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, TJX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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